Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
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Consulting
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Cognitive Business Operations
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Highlights
- Lengthy loan approval cycle time often results in borrower missing out on critical events of his life such as having a dream home
- Some key reasons for the lengthy approval process are outdated solutions, insufficient data as different lenders have different requirements, and the inability to complete the ‘know-your-customer’ process on lenders’ behalf
- Replacing conventional work methods that require heavy human intervention with machine-first digital solutions that automate processes will transform the way mortgage lenders do business with brokers, ensuring faster loan approvals
On this page
Problem overview
Mortgage brokers make the home search experience of customers seamless, convenient and pleasant.
However, all their hard work goes to waste if the mortgage loan approval cycle time is inordinately long. Longer mortgage loan approval cycle time results in borrowers losing their earnest money as a sales contract usually has a 14-day finance clause that gives the intended buyer 14 days to arrange the amount required for the sale. Significant delays in credit approval by lenders deal a serious blow to the broking business, especially for small broking houses.
The mortgage approval cycle time through a direct lender is quite faster than through brokers. In the House of Representatives Standing Committee of the 46th Australian parliament set up in 2019 to investigate how major banks are balancing the interests of a diverse set of stakeholders, banks cited various reasons for delays in processing loan applications received through brokers including:
- Outdated aggregation software of brokers leads to more manual work and less automatic processing
- Gaps in the information brokers provide (missing clear minimum document requirements tailored to the type of application)
- Broker channel-originated loans need rework due to higher complexity and for customer verification. Banks often see more new applicants through the broker channel than via their proprietary channel
- Broker personnel deal with multiple lenders and, therefore, often fail to adhere to lender-specific policies and servicing cost calculations, adding to the delay in processing
- Spike in demand through the broker channel
- Processes for loans differ between banks’ proprietary channel and broker channel due to the origination platform. This means banks’ origination applications cannot handle loan requests from all channels.
- Certain verifications like ‘know your customers’ are mandated by law and have regulatory implications for any lapse. Brokers cannot complete these on banks’ behalf.
- Certain products like loans for the self-employed, construction loans, and mortgage insurance that lenders mandate are complex. Processing these take time and result in longer credit approval cycles.
What Lenders can do
How Lenders, can show the way to bridge the gap in proprietary and broker originated loan application processing?
Glaring deficiencies highlighted to The House of Representatives provide great opportunity to Lenders to introspect and take the lead.
In Australia, the big four broking houses dominate the market with about 40% share, and they enjoy long-standing business relations with banks leaving rest to small-time brokers. Small-time brokers often lack robust technology platform that is geared to handle lender specific customized policies and procedure.
Though interest rates, disposable income, home prices, and employment growth in specific location are critical for credit uptake, empowering small-time brokers and tapping into their vast reach of customers provides immense opportunity for Lenders to improve their credit uptake and portfolio.
Next-gen solutions
Drive next-generation digital transformation by leveraging a machine-first approach to transform conventional lending methods and enhance lending experience.
Traditional methods rely heavily on human intervention and require long document checklists. There are many back-and-forth interactions between several players. Automating all aspects of activities that are core to the solution and then turning them into intelligent processes will transform the way a mortgage application is processed. It can leverage modern-day technology, with digital at the core. Digitalized data extraction will enable the solution to run rule-based engine to instantly detect deficiency in the document and information given and provide just what the banks need. A microservice-based solution with API-enabled cloud functionality will enable scaling at short notice allowing operations to continue virtually from all places across Australia, thus breaking physical barriers.
Key features that could make the solution distinct:
- Building an integrated optical character recognition (OCR) engine
- Setting up workflow with flexible inbuilt business rule engine configured for various lenders
- Solution laced with a format-agnostic feature to handle the data requirement of multiple brokers and lender systems
- Automated checklist-based document review
- Customized, lender-focused review of product and policy compliance
- Prompt engineering for on-demand insights
Benefits
Harmonious co-habitation will go a long way in ensuring robust lending markets benefiting all-stakeholders and delivering pronounced results in driving efficiency metrics
Benefits to be derived from the solution.
- Reduction in information-gap as instant document deficiency will help brokers follow first time-right business practice
- Customized data and document delivery checklist will ensure compliance with individual lender’s policies.
- Modernized upgraded systems to handle large volume/demand surges and face ingenuity of competitors
- Handling complexity of loans through a digital-powered solution built with business rule engine
- Reducing manual data entry through use of data and document digitization using OCR capabilities
- Regulatory compliance through customizable solutions
- Improved mortgage approval cycle time
- Cost reduction by reducing rework and delays
- Higher borrower satisfaction
Effective use of modern-day technology will help drive brokers and borrowers move to a realization state from a state of confusion caused by frequent to and from between borrowers and brokers for loan-related information that causes loss of time and money. Broker can effectively provide accurate data and documents to lenders for faster turnaround.
There is great opportunity for lenders to bring in a new era of home lending experience to borrowers and effectively create a stable, secure mortgage lending market.
